BUSINESS TRANSACTIONS AND EVENTS
Not all business activities are “accountable”.
For example: hiring of employees, death of company president, and entering into contracts
Business activities are said to be accountable and are called business transactions and events when they affect assets,
liabilities, and owner’s equity.
Business events are the occasional occurrence in the life of the business.
Example: Inventory loss due to theft and robbery
Decline in market valuation of inventory
Calamities affecting the enterprise
Business transactions are exchanges of equal monetary value. This definition implies the following concept of
understanding:
1. For every value received, another value is given away as an exchange;
2. These values are measured in terms of pesos which are presumed to be equal.
To summarize, in every transaction, there is a Value Received, which we call a DEBIT and the Value Parted With, we call a
CREDIT. This is the give-and-take process of accounting as expressed in an equation:
Debit, Value Received = Credit, Value Parted With
Analysis of Business Transactions
Business transactions are analyzed from the viewpoint of the business. If the transaction is “Purchased” or
“Bought”, it is the business that is buying; if the transaction is “Sold”, it is the business that is selling; if the transaction is
“Paid”, it is the business that is paying; if the transaction is “Collected”, it is the business that is collecting; if the transaction
is “Rendered services”, it is the business that is rendering services, and not the other way around. Don’t forget this, “always
consider yourself as the business” when making the analysis.
The value received or debit should first be determined before the value parted with or credit.
Examples:
“If I’ll give you an eraser and you will give me a piece of chalk in return as an exchange, can you determine the
value received and the value parted with?
If your answer is, the value received is an eraser and the value parted with is a piece of chalk, you have answered
it correctly. You will then say,
“Debit, eraser and Credit, a piece of chalk”
“If I’ll give you a ballpen and you will give me a piece of paper in return as an exchange, can you determine the
value received and the value parted with?
If your answer is, the value received is a ballpen and the value parted with is a piece of paper, you have answered
it correctly. You will then say,
“Debit, ballpen and Credit, a piece of paper”